Insiders are selling Nvidia stock! Should I?

Nvidia stock’s made plenty of investors richer over the past 18 months, including many insiders. So why are some of those insiders selling?

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Nvidia (NASDAQ:NVDA) stock has pushed higher than many investors could have imagined. A year after my first investment in the GPU (graphics processing unit) maker, I’m up nearly 200%. It can be really tempting to cash in.

However, it seems people working at Nvidia are selling some of their stock, including president Jensen (Jen-Hsun) Huang. So what does this mean?

Nvidia insiders sell

Huang has sold 480,000 shares in July alone, generating just short of $60m. This is on top of the $169 million worth of stock he sold last month — his most ever.

Moreover, executives at Nvidia have sold more than $700m of stock this year. Once again, this is a record for Nvidia.

Among the significant sales is Colette Kress, EVP and CFO at Nvidia. She sold 200,000 shares in late June generating more than £24m in a single transaction.

Several other EVPs, including Ajay Puri, sold stock in June.

Should we be concerned?

I think there are several thinks to note before we start to worry. Firstly, while these might be ‘record’ sales in value terms, it’s worth recognising this likely reflects the surging share price.

If insiders had sold exactly the same number of shares two years ago (accounting for the share split), these transactions collectively would be worth $70m. That’s just 10% of the value of the share sales this year.

Secondly, insiders can sell stock for a host of personal reasons, including tax planning and making major purchases. For context, the stock’s up 3,004% over five years and 29,000% over 10 years. The stock’s probably turned many long-term employees with once-modest holdings into multi-millionaires.

There’s also the matter of concentration risk — having too much of your money in one investment.

Billionaire investor Warren Buffett reportedly convinced Bill Gates to sell Microsoft shares in an effort to diversify his portfolio. While this is generally a very wise thing to do, it’s interesting to note that Gates would be a trillionaire if he’d kept his Microsoft shares!

The bottom line on Nvidia stock

Nvidia is the kingpin of the artificial intelligence (AI) revolution, with its GPUs offering parallel processing power crucial for training complex AI models.

Nvidia’s stock’s expensive by near-term metrics, trading at 46.6x forward earnings. Despite this, it’s among the cheapest of the ‘Magnificent Seven’ tech giants by the price-to-earnings-to-growth ratio, which stands at 1.42. This is testament to the staggered earnings growth projections.

Growth is expected to continue strongly throughout the decade, driven by increasing investment from hyperscalers in AI and cloud infrastructure.

Its leadership in AI technology and its huge R&D investments positions it well to capitalise on these trends, ensuring sustained demand for its advanced GPUs and related tech.

Personally, I see no reason to sell my Nvidia shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has positions in Nvidia. The Motley Fool UK has recommended Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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